CRI English | Small Shareholders Get Bigger Role

// Published January 19, 2006
Shenzhen Stock Exchange Board members have ordered that listed enterprises adopt cumulative voting for elections of corporation directors. The idea is to give small shareholders a larger voice in corporate governance.

Small Shareholders Get Bigger Role Listed firms on the Shenzhen board is also required to hold competitive elections when choosing directors and supervisors for the board and to apply 'cumulative voting'.

That allows shareholders to multiply the number of shares they own by the number of directorships being voted for.

The votes may be cast in any manner that the holder chooses all for one director or any combination thereof.

Under the traditional winner-take-all voting system, a majority shareholder could personally install each board member, regardless of whether he or she controlled 51% or 99% of shares. That's because winner-take-all awards 100% of representation to 50% + 1 of the vote.

In politics, this is the equivalent of a winner-take-all at-large election - for example, a ten-member city council consistently swept by the same majority demographic.

Cumulative voting lets minority shareholders "plump" votes onto one, two, or a few selected candidates. Every voter gets as many votes as there are seats - or, in this case, his/her shares times the number of seats. He/she can distribute those votes in any way - all for one candidate, half each for two candidates, one vote for each seat to fill, et cetera.

The difference between cumulative and winner-take-all is that, by "plumping" votes behind one or a few chosen candidates, a minority group cannot win more representation than that to which it is entitled. But it can at least pick up one, two or a few seats. Under winner-take-all, a majority shareholder can dominate the board without any oversight. Cumulative voting at least lets other shareholders ensure some oversight - an 'opposition party' of sorts.

It's already used by several American joint stock companies.